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Tuesday, January 18, 2011

3G, MNP to define 2011 telecom story

It has been a momentous year for the telecom sector, with mobile subscribers hurtling towards the 800 million mark and gross revenues crossing $20 billion. Projections suggest that India will achieve 893 million wireless subscribers by 2012 & 1,243 million wireless subscribers by 2015.

This growth comes with economies of scale. India boasts of the lowest tariffs in the world leading to lowest ARPU's of $3/subscriber/month, combined with the highest minutes of usage. According to the Cellular Operators Association of India (COAI), every 10% increase in the mobile penetration rate leads to a 1.2% higher growth rate. A huge blip for the sector, however, was the can of worms, which popped out with the 2G scam being busted. It is said to have robbed the exchequer of Rs 1,76,000 crore by offering licences to telecom companies in 2008 at prices prevailing in 2001.

For subscribers, apart from the intense tariff war, Mobile Number Portability (MNP) and 3G were the most consumer-friendly introductions during the year. While MNP would enable a consumer to choose a service provider and thus put pressure on companies to deliver the best service, 3G would open up a new range of services, including data downloads at the shortest possible time.

The 3G/BWA auctions held this year helped the government raise $16 billion and boosted its fiscal situation. The spectrum has been allotted to the winners and services are expected to be launched shortly. MNP was first launched in the Haryana circle to begin with, with a pan-India launch scheduled by January 20. According to Rajan Mathews, director general, COAI, "The telecom sector has successfully withstood the challenges of global recession, an intense tariff war as a result of which tariffs fell to rock bottom levels, with some operators introducing paise per second rates as well as launch of service by new operators". However, Dunigan O'Keeffe, a Bain & Company partner in India, feels "2010 confirmed that India is now a highly-competitive and maturing market; the days of 30% plus revenue growth and 40%+ EBITDA margins are long gone and will not return."

According to O'Keeffe, overall, SIM growth has continued, but this no longer directly translates into revenue growth. "In metro areas, many have multiple SIMs. New subscribers are coming in rural areas where usage—and spending—is lower. Finally per minute pricing has dropped as challengers (Tata DoCoMo, Uninor) have competed for market share," he said. He adds that consolidation will be required to fundamentally change the profitability of the market and data revenue will become important and offset flattening voice growth.

Looking ahead into 2011, Mathews feels the launch of 3G services will not only lead to introduction of new VAS applications but also give a boost to initiatives such as e-education and telemedicine.

"With minimal fixed line broadband penetration in the country, 3G will be the quickest way for Indian consumers to experience Mobile Broadband and also help improve productivity in rural areas, catalyzing an overall improvement in the quality of life of the rural masses".

"While 3G will receive a lot of focus from operators in 2011, adoption is likely to be slow and the in-year financial impact minimal", cautions Keefe.

"By the end of 2011 we should have a good sense of who is winning and losing. We have seen in global markets that it takes a while for 3G to move from being a technology to an actual compelling customer proposition. Even the more recent rollout of 3G in China has seen only 4% adoption after two years of marketing and visible government support," he adds. Experts believe that in the first instance, 3G will be used by many operators to improve their overall network quality and retain voice customers.

One added challenge in India is the fractured mandate delivered by the 3G auction. Operators don't have national footprints. It is likely therefore that there could be partnerships across operators to knit together a national offering. "What we will see is a lot of innovation in terms of the offering, with mobile operators creating value-added data services – either in house or via partnership. This requires a new set of skills from the operator," Keefe predicts.

Mobile Number Portability (MNP) is not expected to cause a major disruption or significantly shift market shares. While established players have the most to lose given their large customer bases, they also have strong propositions and can benefit from lessons learned from global markets that have already transitioned to MNP. India has very high churn rates already. While MNP may have a one-time impact, it is likely that the winners will be those who are already winning the net acquisition battle.source

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